The Mark Twain Effect

In his novel “Pudd’nhead Wilson” written in 1894, Mark Twain makes the assertion October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” 

Mark Twain, was, of course, a great writer. Unfortunately, he was an incompetent businessman and a notoriously bad investor.  Over his lifetime he lost a fortune in bad investments. He just couldn’t seem to make any money from his speculation! Similarly, that other great genius, Sir Isaac Newton, was also a hopeless investor who lost millions in the stock market. Newton’s on-going losses in the stock market prompted him to state: I can calculate the motions of the heavenly bodies, but not the madness of the people.”

Neither Twain nor Newton had any success with investments nor did they have any special knowledge about investments. Both lost fortunes during their lifetimes so should one accept the assertion that October a peculiarly dangerous month for speculating in stocks?

The October Effect

The belief that stock markets tend to decline in October is known as the “October Effect.” Is this true? Is October a peculiarly dangerous month for speculating in stocks? 

The belief that October is a peculiarly dangerous month is a psychological belief that shares tend to decline in October. However, if one analyses the returns for the past century there is no evidence to confirm that October is a month in which shares decline more compared to any other month.  Actually, September has seen more declines than October!

Of course, our response to Mark Twain’s saying is that speculation is probably always dangerous! There is a difference between speculation in shares, which is generally of a short term nature and investing into shares for medium to long term capital appreciation or in order to receive dividends that appreciate over time. There is no doubt that a well-constructed portfolio of shares, bonds, cash and property should produce acceptable returns in the long term.

Our philosophy has always been to create wealth for our clients by investing in prudent investments. We are not enticed by the latest get-quick-rich fads; cryptocurrencies, 4th Industrial Revolution funds and the like! Let’s face it. How many investors actually know what they are buying when they buy a cryptocurrency or how they actually work!

Our approach is to provide investment funds that have excellent long term performance records and that have demonstrated their ability to create wealth for investors in the long term. With this in mind, October doesn’t seem peculiarly dangerous for sensible prudent investors. Time is one of the most important factors that make investments a success! So for speculators, October probably is a dangerous month but not more so than any other month. However, with time a long term investment perspective, October is not better or worse than any other month.

Save the date!

We will be hosting an investor presentation on Wednesday 30th October 2019 from 11h30 to 13h00. We are delighted to have Peter Kempen, head of retail distribution for Coronation Fund Managers as our guest speaker.

Please contact Leonie at info@kevinmillsfs.com to reserve your seat!

“I am so glad to live in a world where there are Octobers.” L. Montgomery